Bitshares shorting is flawed and needs to be fixed ASAP

[CastAway33]

With proper collateral, is it possible that the network could safely implement something other than (long bitshares/short bitAsset)? It would be a great to be able to (long anything/short anything), for example - (long bitGOLD/short bitCNY)

[yvv]

@yvv because he's thinking how to improve user experience through automation in GUI , not about changing contract design. If order is not filled and market moves wrong direction then you have margin call.

This is exactly a problem which automation should solve. It should close all  margin orders when a margin call is triggered. Why do you want to close them before?

Margin calls execute at 10% above the price feed, i. e. the shorter is punished for not managing his position properly.

No, it currently works differently. When the margin call is triggered, it takes all market orders up to short squeeze protection price, and leaves a limit order at SQP. The purpose is not to punish shorter, but opposite, to protect him from buying back his debt back too high. And this still does not explain, why do you want to cancel partially taken settle order?
 

[pc]

@yvv because he's thinking how to improve user experience through automation in GUI , not about changing contract design. If order is not filled and market moves wrong direction then you have margin call.

This is exactly a problem which automation should solve. It should close all  margin orders when a margin call is triggered. Why do you want to close them before?

Margin calls execute at 10% above the price feed, i. e. the shorter is punished for not managing his position properly.

[yvv]

@yvv because he's thinking how to improve user experience through automation in GUI , not about changing contract design. If order is not filled and market moves wrong direction then you have margin call.

This is exactly a problem which automation should solve. It should close all  margin orders when a margin call is triggered. Why do you want to close them before?

[nmywn]

@yvv because he's thinking how to improve user experience through automation in GUI , not about changing contract design. If order is not filled and market moves wrong direction then you have margin call.

[yvv]

You have to remember that unlike Poloniex bitshares is a blockchain based exchange which imposes some limitations on what is feasible in terms of performance.

Most if not all the changes you're talking about here would require a hard fork, but I can't judge if they're even technically possible.

Everybody keep saying that decentralization imposes this and that limitations. If it is so limited, why do we need decentralization at all? Imo, most of these "limitation" is just lack of competence.

One idea that I like is being able to close your position by using the collateral you've already set aside, I suspect the reason for that is the lack or market orders. However, that could be worked around by an operation that placed a limit order with a high enough price that it would just walk the orderbook. It would need to be a fill-or-kill order so that it fails of it can't get filled completely.

Here is a constructive talking. And why should it be fill-or-kill? You are 10 bitUSD short, you have enough collateral to buy up to collateral_ratio*call_price, you place a limit order to buy 10 bitUSD, you buy 1 bitUSD, you are 9 bitUSD short now, and you have 9 bitUSD buy order at same price.  What is wrong with that? As long as you collateral ratio stays  above MCR, you are safe, you can do whatever you want, borrow, settle, whatever .

[svk]

You have to remember that unlike Poloniex bitshares is a blockchain based exchange which imposes some limitations on what is feasible in terms of performance.

Most if not all the changes you're talking about here would require a hard fork, but I can't judge if they're even technically possible.

One idea that I like is being able to close your position by using the collateral you've already set aside, I suspect the reason for that is the lack or market orders. However, that could be worked around by an operation that placed a limit order with a high enough price that it would just walk the orderbook. It would need to be a fill-or-kill order so that it fails of it can't get filled completely.

[yvv]

...

I am not comparing zebras and apples, I am comparing two crypto exchanges with similar set of features if you noticed. And this comparison is not in favor of bitshares, particularly in margin trading part. I am not talking about bond market, I am talking about bitAsset, which are issued through shorting, which is trading on margin.  If forex brokers do margin trading even better than poloniex, this does not make bitshares shorting look any better. And don't tell me that this is because DEX is so special, that you can't do shorting a sane way, I don't buy this. Could you give a reasonable explanation, why you need to deposit almost 200% collateral upfront, before you short sell? And why do you need to deposit additional 100% on top of 200% collateral to close the position? May be I am wrong and there is such necessity, but I would like see a reasoning.

[tbone]

You need to try margin trading at other exchanges to see how screwed is bitshares shorting. I tried shorting at poloniex last night, and now very regret that I did not try this earlier, because it makes so much more sense than shorting in BTS. At poloniex, you deposit 1 BTC, and this allows you to short 2.5 BTC worth of any assets by simply placing sell orders. When your order is filled, BTC which you got from short selling, is added to your initial deposit to back up the debt which you just created. You settle your debt by simply placing a buy order. When it is filled, your collateral is transferred to other party and your debt is settled. This is how margin trading is actually supposed to work. You deposit only 40% collateral upfront, but your position is 140% collateralized.

The guys who coded shorting in BTS clearly had no clue what are they doing. To issue bitAsset, we need to deposit a double collateral upfront, and to settle the debt we need to deposit 100% on top of double collateral. This is ridiculous and defeats the whole purpose of margin trading, which is to trade large amount with small funds. MPA is a very nice concept, which is buried under flawed implementation. Shorting is a central piece of BTS monetary system, but it is totally screwed. This has to be fixed ASAP. BTS shareholders should hire somebody who has expertise in developing trading software, pay them well through worker and let them fix shorting and all other flaws. Before this is done, don't dream about mass adoption, because other exchanges offer much cleaner products.

What a strange thread.  First of all, leverage with Poloniex is based on p2p lending.  Bitshares could offer this feature via a bond market, which has been proposed and discussed in the past but never implemented due to lack of consensus on whether and how it should be funded.  Were you not paying attention?   

Also, even if Bitshares had a bond market for leverage, that is a totally different feature than shorting on Bitshares, which is designed for the purpose of creating bitAssets.  So why are you comparing "margin trading at other exchanges to...Bitshares shorting"?  LOL.   Obviously these are 2 completely different things, each with utterly different purposes. 

Finally, in your apples to zebras comparison, you've also managed to oversimplify the process of using margin on Poloiniex.  For example, you failed to mention that you have to move funds into a special margin account, where the funds will be totally segregated from your other funds.  And once you have a margin position, the only way to get off margin is to close the position (and move funds back to the regular trading account if you just want to trade without margin).  This is far more complicated than it needs to be.  With a traditional brokerage, for example, there's no separate margin account.  Simply buying more assets than you have enough fiat funds to cover (i.e. causing your collateral ratio to go below 100%) automatically puts you on margin.  To get off margin, you just bring your collateral ratio back to 100% or more by simply closing some or all of any position(s), or by adding more fiat, or both.   

In any event, there's one thing I kind of agree with you on.  On the DEX it would be nice if your collateral ratio was calculated based on all short positions combined, not individually.  That would be easier to manage.  But doing it that way is not a total no-brainer because I can see how some people would prefer to manage collateral separately for each asset.  I imagine users could be given the choice of managing collateral combined or separately.  Another thing to consider, though, is that combined collateral would introduce some complexity when it comes to forced settlement of least collateralized positions.  Although I'm sure that could be worked out.

[yvv]

Yes, technically my debt would be 5 bitUSD but if I understand it correctly, it works differently right now. My account would have 5 bitUSD and 10 bitUSD debt, in the case of margin call, whole 10 bitUSD would be settled and I would still have my 5 bitUSD in my account, wouldn't I?

Yes, exactly. Currently, you may have 5 bitUSD short position opened and 1000 bitUSD on your balance, and you can be margin called if BTS/USD price moves. This does not make sense to me at all.

Your proposal suggests "normal" and "margin" accounts - I'm not sure how difficult would it be to implement.

Not at all. This could be the same account, but you lock a fraction of BTS into "margin deposit". This means that you can't use these BTS other way than to settle margin position. This would define how much you can go below your current balance. Suppose, you have 1000 BTS and 10 bitUSD in your account. BitUSD is falling, you want to short. You lock 1000 BTS into margin deposit, and this allows you to sell 20 bitUSD at 100 BTS/bitUSD. Now you are 10 bitUSD short, covered with 2000 BTS collateral, and you have another 1000 BTS unlocked, which you can transfer, sell, or add to margin deposit and short 10 bitUSD more. Currently, bitshares allows you to achieve the same result either by going through more steps, or by adding more funds into your account.

I completely agree, this might be the first candidate for improvement. Would it require a hard fork? How to handle already-open positions? Could we implement it iteratively, e.g. handle collateral for bitUSD and bitCNY as one unit, it it's stable, add bitBTC, bitSILVER etc?

I have no idea what it would take to fix this. One thing I know for sure, that if you keep adding new features on top of old mistakes, you are going to end up with complete mess.

[paliboy]

Let's say that I borrowed 10 bitUSD @ 100 BTS with 2000 BTS collateral and then sold it for 10x100 BTS.

• I buy 5 bitUSD @ 84 BTS in market, half of the debt could be automatically settled - do we want to do it? How would it adjust the collateral? Proportionately or should it keed some platform-defined/user-defined collateral ratio?

If you were 10 bitUSD short and you bought back 5 bitUSD, you owe only 5 bitUSD. You want it or not does not matter, your debt is 5 bitUSD, that's the fact.

Yes, technically my debt would be 5 bitUSD but if I understand it correctly, it works differently right now. My account would have 5 bitUSD and 10 bitUSD debt, in the case of margin call, whole 10 bitUSD would be settled and I would still have my 5 bitUSD in my account, wouldn't I?

• I want to settle half of my debt, I click "Update position" in "Margin Positions" in Bitshares wallet, enter 5 into Debt input box and click "Update positon" button. Network buys necessary assets for me at market rate and updates the collateral ratio - the same problem as in point 1.

None of these "borrow asset" or "update position" buttons are needed. Margin trading is not different from regular trading except for the amount of funds available to spend. You should be able to run a regular trading bot on margin account, which knows only "buy" and "sell" operations the same way as you run it on regular account, and exchange engine should open and close position for you when needed up to the limit defined by your margin deposit. Check polo, coinbase, bitfinex, everywhere you don't "borrow" or "update", you just buy and sell. This makes a lot of sense to me.

I completely agree with you that "borrow asset" and "update positon" buttons are not needed. I'm just trying to bring ideas how to improve trader's experience with minimal changes in platform itself. Your proposal suggests "normal" and "margin" accounts - I'm not sure how difficult would it be to implement.

Edit: Oh, and you don't need to keep a separate deposit for each opened position, because it is a ratio of total equity to total dept which matters. If your MCR=2 and you are short in bitUSD and bitSilver with 2.2x collateral, and bitSilver goes up by 10%, there is no need to trigger a margin call yet, because your deposit is still enough to back both positions.

  I completely agree, this might be the first candidate for improvement. Would it require a hard fork? How to handle already-open positions? Could we implement it iteratively, e.g. handle collateral for bitUSD and bitCNY as one unit, it it's stable, add bitBTC, bitSILVER etc?

[yvv]

Let's say that I borrowed 10 bitUSD @ 100 BTS with 2000 BTS collateral and then sold it for 10x100 BTS.

• I buy 5 bitUSD @ 84 BTS in market, half of the debt could be automatically settled - do we want to do it? How would it adjust the collateral? Proportionately or should it keed some platform-defined/user-defined collateral ratio?

If you were 10 bitUSD short and you bought back 5 bitUSD, you owe only 5 bitUSD. You want it or not does not matter, your debt is 5 bitUSD, that's the fact.

• I want to settle half of my debt, I click "Update position" in "Margin Positions" in Bitshares wallet, enter 5 into Debt input box and click "Update positon" button. Network buys necessary assets for me at market rate and updates the collateral ratio - the same problem as in point 1.

None of these "borrow asset" or "update position" buttons are needed. Margin trading is not different from regular trading except for the amount of funds available to spend. You should be able to run a regular trading bot on margin account, which knows only "buy" and "sell" operations the same way as you run it on regular account, and exchange engine should open and close position for you when needed up to the limit defined by your margin deposit. Check polo, coinbase, bitfinex, everywhere you don't "borrow" or "update", you just buy and sell. This makes a lot of sense to me.

Edit: Oh, and you don't need to keep a separate deposit for each opened position, because it is a ratio of total equity to total dept which matters. If your MCR=2 and you are short in bitUSD and bitSilver with 2.2x collateral, and bitSilver goes up by 10%, there is no need to trigger a margin call yet, because your deposit is still enough to back both positions.

[yvv]

I wouldn't call this "workarounds",  better would be "not obvious". . I gues when you're closing position on polo it execute margin call.

No, it sells your collateral at the market. You can specify the amount and price to be settled or just settle all at current market price. Margin call is triggered when collateral ratio hits the limit, same as in bitshares.

[nmywn]

I understand that polo way is basically the same (just in different order), but much easier for use and have less friction.

Yes, this is what I am talking about. Just forget about their higher leverage for a moment (although this is also important factor). The hole process of shorting at polo is one simple action: you place a sell order. To settle your debt, you place a buy order. The final result is the same as in BTS, but everything is seamless, and you don't need to make unnecessarily  high deposits. The mechanics behind this is very simple, and I don't see a reason why it should not work at DEX. You can still use your bitAssets as money, i.e. buy/sell/transfer etc.   

The amount of collateral which you need to put upfront depends on the price at which you short sell your asset. If you short at feed price, you need to put only MCR-1 upfront, because the rest you get when you sell your asset, and before that you don't have no dept. If you sell at premium, you need to put less upfront, if you sell at discount, you need to put more. If you want to short, but don't want to sell, you need to put entire collateral upfront and then do what you want with your asset, same as you do now.

Same goes with closing position. It is ridiculous that you need to deposit additional funds on top of collateral to settle your debt on DEX,  or find other workarounds, because the only purpose of collateral is to be used to settle the debt. And again, the amount of collateral which you need to spend depends on the price at which you buy back you debt, cheaper you buy, less you spend. If somebody kindly sends you bitAsset for free, you just keep your collateral.

I wouldn't call this "workarounds",  better would be "not obvious". . I gues when you're closing position on polo it execute margin call.

Anyway,  it's just illusion created for "all in"  type of guys, after the "sell" balances stay the same: same debt, same collateral, same free funds. Would be cool to have that. This can be done instead current one, actually - I was wrong (again) and I see it now. The only change is ability to create fake market pressure with less funds.

[xeroc]

@paliboy
settlement works differently. It doesn't buy back the debt in the market, but exchanges it into collateral from the shorter that has the least collateral ratio - and it does to **AT MARKET PRICE**.
Currently, there is a proposal approved that will move 1% of the volume from your end to the end of the shorter as some kind of a "fee".

If you want to close your position with a single click, we can make transactions that buy and close in the same transaction

[paliboy]

Same goes with closing position. It is ridiculous that you need to deposit additional funds on top of collateral to settle your debt on DEX,  or find other workarounds, because the only purpose of collateral is to be used to settle the debt. And again, the amount of collateral which you need to spend depends on the price at which you buy back you debt, cheaper you buy, less you spend. If somebody kindly sends you bitAsset for free, you just keep your collateral.

Let's say that I borrowed 10 bitUSD @ 100 BTS with 2000 BTS collateral and then sold it for 10x100 BTS.

• I buy 5 bitUSD @ 84 BTS in market, half of the debt could be automatically settled - do we want to do it? How would it adjust the collateral? Proportionately or should it keed some platform-defined/user-defined collateral ratio?
• I want to settle half of my debt, I click "Update position" in "Margin Positions" in Bitshares wallet, enter 5 into Debt input box and click "Update positon" button. Network buys necessary assets for me at market rate and updates the collateral ratio - the same problem as in point 1.

IMHO it shouldn't be very difficult to implement (semi-)automatic closing of positions. Which one would people prefer? Or do you want something completely different?

[yvv]

I understand that polo way is basically the same (just in different order), but much easier for use and have less friction.

Yes, this is what I am talking about. Just forget about their higher leverage for a moment (although this is also important factor). The hole process of shorting at polo is one simple action: you place a sell order. To settle your debt, you place a buy order. The final result is the same as in BTS, but everything is seamless, and you don't need to make unnecessarily  high deposits. The mechanics behind this is very simple, and I don't see a reason why it should not work at DEX. You can still use your bitAssets as money, i.e. buy/sell/transfer etc.   

The amount of collateral which you need to put upfront depends on the price at which you short sell your asset. If you short at feed price, you need to put only MCR-1 upfront, because the rest you get when you sell your asset, and before that you don't have no dept. If you sell at premium, you need to put less upfront, if you sell at discount, you need to put more. If you want to short, but don't want to sell, you need to put entire collateral upfront and then do what you want with your asset, same as you do now.

Same goes with closing position. It is ridiculous that you need to deposit additional funds on top of collateral to settle your debt on DEX,  or find other workarounds, because the only purpose of collateral is to be used to settle the debt. And again, the amount of collateral which you need to spend depends on the price at which you buy back you debt, cheaper you buy, less you spend. If somebody kindly sends you bitAsset for free, you just keep your collateral.

[yvv]

Well said. I wonder why @yvv didn't respond to this.

IMHO current design of MPA is not for high-risk seeking traders, but the opposite.

If we want to attract high-risk seeking traders, we need other products (done by 3rd party or not).

What do you expect me to respond? I agree with what the guy said. No, BTS can't offer 50:1 leverage at current market depth. This is not what I raise in OP.

[yvv]

What if creating a MPA and shorting an asset are two different features?

Maybe we just need to build an additional shorting feature like on Poloniex for only that purpose?

Why don't we fix MPA shorting instead? Would not this be much simpler?

[abit]

The leverage you like so much is merely an illusion of safety made attractive by potential profits. That safety will evaporate faster than a bot can place an order when the inevitable collapse begins.

You didn't even understand what am I talking about.  Yes, I like leverage, because this is what gives motivation to short assets instead of just holding them. And since MPA are created through shorting, no shorting means no liquidity. Let's forget about it for a moment. Suppose we are fine with 1:1 leverage, then BTS shorting is still screwed. You still need to put unnecessary high amount funds when you open and close position. How does this make BTS more safe than polonoiex? I say, it does not. In fact, it hurts BTS a lot.

Yvv is correct that the way the current system is designed, it is cumbersome and confusing to short and trade... pair that with the lack of order types (Take profit, stop loss) and you have something that isn't appealing or similar to what traders currently use.

The question is, as Xeroc eluded too, should BTS change it's risk profile to add leverage and cater to traders? personally I think 3rd parties should be the ones offering leverage and then use the DEX as a way to manage their risk.  The way poloniex and most exchanges operate is that they make you have a minimum margin when using leverage, if the value of your position falls below the minimum margin your position is automatically closed.  In order for this to work, ample liquidity and deep order books are mandatory.  MF-Tzo referenced when the SNB depegged the swiss frank from the euro... Liquidity evaporated and there was a 20% move in the currency.  This caused many FX traders to go under as well as some exchanges (FXCM had to be bought out).  This is not a position that the DEX should ever be put in, and even if it was decided that BTS should be like FXCM or poloniex, I'm going to guess some drastic changes would need to be made to the code. 

Truth be told... most brokers that offer 50:1 or more leverage are gambling houses.  The big bank traders don't come close to that leverage (if they use any at all), and usually their orders are passed directly to the interbank market.  The 50:1 brokers typically use a dealing desk and take the opposite side of their clients trades.  They will sometimes pass the orders to the interbank market to help manage their risks, but this is typically only done for large orders.

Well said. I wonder why @yvv didn't respond to this.

IMHO current design of MPA is not for high-risk seeking traders, but the opposite.

If we want to attract high-risk seeking traders, we need other products (done by 3rd party or not).

[nmywn]

You would need special margin account that limit you for only one use case. So this is not flaw in current implementation, as you stated, but lack of additional feature. I understand that polo way is basically the same (just in different order), but much easier for use and have less friction. Maybe workaround (for now) would be bot that allow you pass all the necessary steps behind the scenes, while creating illusion that you already have full funds in moment of deposit. But, disadvatange/advantage is clear: you can't create fake market pressure this way (sell walls).

@Chris4210 yeah.

[Chris4210]

What if creating a MPA and shorting an asset are two different features?

Maybe we just need to build an additional shorting feature like on Poloniex for only that purpose?

[yvv]

I can buy any worthless UIA with borrowed bitUSD, which wouldn't be possible with polo scheme. Why? Because you MUST sell it against BTS to cover collateral. That sucks. Any fiat gateways  using MPA's instead of UIA would be forced to buy bitXXX from the market to build reserves. Now they can simply borrow, not for shorting purposes, but for operating deposit/withdrawals, making markets etc. without need of selling BTS power. It's not shorters heaven, because it wasn't designed for them. It is not dumb, look top volume markets for OPEN.BTC. It's working.

You do need to put the whole collateral upfront if are  not selling bitUSD for BTS (selling it for shit token or giving it away), there is no problem with that. But you don't need to put the whole collateral upfront if you are selling for BTS, and you are required to put it upfront, this is a problem. A better solution exists and it works on other exchanges.

In fact, although the base collateral asset for bitUSD is BTS, you don't actually need to keep BTS to back it. If you don't trust BTS, you could keep bitCNY or other bitAsset instead and that would be as good security as BTS. If this was allowed, BTS shorting would be really powerful. But this is another story which should be discussed somewhere else.

[nmywn]

I can buy any worthless UIA with borrowed bitUSD, which wouldn't be possible with polo scheme. Why? Because you MUST sell it against BTS to cover collateral. That sucks. Any fiat gateways  using MPA's instead of UIA would be forced to buy bitXXX from the market to build reserves. Now they can simply borrow, not for shorting purposes, but for operating deposit/withdrawals, making markets etc. without need of selling BTS power. It's not shorters heaven, because it wasn't designed for them. It is not dumb, look top volume markets for OPEN.BTC. It's working.

[yvv]

Not the margin trading but in general, the whole system. Do they show proof of reserves for their system? I don't know.

As a centralized exchange, they surely can do all kind of bad things, no doubt in that. But we are talking about margin trading here. And this is what they do the right way. Not only higher leverage than bitshares, but trading mechanics is different too.

[Pheonike]

Not the margin trading but in general, the whole system. Do they show proof of reserves for their system? I don't know. 

[yvv]

You must also remember that when exchanges like POLO are providing leverage, all those transaction are just number in a database.  They are running a fractional reserve . 

When you open a margin position at polo, you are required to back it with minimum 140% collateral, which is allowed go down to 120% later. How does this become a fractional reserve?

[Pheonike]

You must also remember that when exchanges like POLO are providing leverage, all those transaction are just number in a database.  They are running a fractional reserve .  We bitshares cannot have a fractional reserve. Most of those can't cover all the deposits on hand. Bitshares can not run a fractional reserve. It was deigned to be the direct opposite. The systematic risk is too high. We can't Fudge the numbers like other places do.

[lil_jay890]

The leverage you like so much is merely an illusion of safety made attractive by potential profits. That safety will evaporate faster than a bot can place an order when the inevitable collapse begins.

You didn't even understand what am I talking about.  Yes, I like leverage, because this is what gives motivation to short assets instead of just holding them. And since MPA are created through shorting, no shorting means no liquidity. Let's forget about it for a moment. Suppose we are fine with 1:1 leverage, then BTS shorting is still screwed. You still need to put unnecessary high amount funds when you open and close position. How does this make BTS more safe than polonoiex? I say, it does not. In fact, it hurts BTS a lot.

Yvv is correct that the way the current system is designed, it is cumbersome and confusing to short and trade... pair that with the lack of order types (Take profit, stop loss) and you have something that isn't appealing or similar to what traders currently use.

The question is, as Xeroc eluded too, should BTS change it's risk profile to add leverage and cater to traders? personally I think 3rd parties should be the ones offering leverage and then use the DEX as a way to manage their risk.  The way poloniex and most exchanges operate is that they make you have a minimum margin when using leverage, if the value of your position falls below the minimum margin your position is automatically closed.  In order for this to work, ample liquidity and deep order books are mandatory.  MF-Tzo referenced when the SNB depegged the swiss frank from the euro... Liquidity evaporated and there was a 20% move in the currency.  This caused many FX traders to go under as well as some exchanges (FXCM had to be bought out).  This is not a position that the DEX should ever be put in, and even if it was decided that BTS should be like FXCM or poloniex, I'm going to guess some drastic changes would need to be made to the code. 

Truth be told... most brokers that offer 50:1 or more leverage are gambling houses.  The big bank traders don't come close to that leverage (if they use any at all), and usually their orders are passed directly to the interbank market.  The 50:1 brokers typically use a dealing desk and take the opposite side of their clients trades.  They will sometimes pass the orders to the interbank market to help manage their risks, but this is typically only done for large orders.

[yvv]

It seems I'm not the one who lacks understanding here.

This is very simple to understand. Let me show this to you ELI5 style. Suppose, you have 1 USD worth of BTS in your account. With double collateral (no leverage), you should be able to short 1 bitUSD, right? Tell me step by step, how would you do this in bitshares. Just answer my question, and I will repeat myself how I would do the same at poloniex to make the difference clear. @Thom

[Thom]

This would be a huge advantage of bitshares over other exchanges, if it was not implemented a dumb way. How does this dumb implementation add more safety?

It seems I'm not the one who lacks understanding here. Good luck with your Keynesian view of what drives the free market. I hope it doesn't come to dominate and corrupt the governance of BitShares.

[yvv]

MPA is a lending on blockchain, but it is crewed.

His point is that bitassets are borrowed FROM the blockchain while in p2p lending, you borrow from actual people.

This would be a huge advantage of bitshares over other exchanges, if it was not implemented a dumb way. How does this dumb implementation add more safety?

[yvv]

The leverage you like so much is merely an illusion of safety made attractive by potential profits. That safety will evaporate faster than a bot can place an order when the inevitable collapse begins.

You didn't even understand what am I talking about.  Yes, I like leverage, because this is what gives motivation to short assets instead of just holding them. And since MPA are created through shorting, no shorting means no liquidity. Let's forget about it for a moment. Suppose we are fine with 1:1 leverage, then BTS shorting is still screwed. You still need to put unnecessary high amount funds when you open and close position. How does this make BTS more safe than polonoiex? I say, it does not. In fact, it hurts BTS a lot.

[xeroc]

MPA is a lending on blockchain, but it is crewed.

His point is that bitassets are borrowed FROM the blockchain while in p2p lending, you borrow from actual people.
The risk profile is different.
BitShares doesn't want to take any risk at all, that's why it is over-collateralized quite a bit while in p2p lending, people are willing to accept default risk for being promised interest.

[yvv]

If someone implements lending on the blockchain, leveraged margin trading, like on Poloniex, will be possible. Once that is done, Bitshares will be the first leveraged trading platform where everything is transparent and nothing fishy going on. The world has never seen one before.

MPA is a lending on blockchain, but it is crewed.

[MarkoPaasila]

If someone implements lending on the blockchain, leveraged margin trading, like on Poloniex, will be possible. Once that is done, Bitshares will be the first leveraged trading platform where everything is transparent and nothing fishy going on. The world has never seen one before.

You need to try margin trading at other exchanges to see how screwed is bitshares shorting. I tried shorting at poloniex last night, and now very regret that I did not try this earlier, because it makes so much more sense than shorting in BTS. At poloniex, you deposit 1 BTC, and this allows you to short 2.5 BTC worth of any assets by simply placing sell orders. When your order is filled, BTC which you got from short selling, is added to your initial deposit to back up the debt which you just created. You settle your debt by simply placing a buy order. When it is filled, your collateral is transferred to other party and your debt is settled. This is how margin trading is actually supposed to work. You deposit only 40% collateral upfront, but your position is 140% collateralized.

The guys who coded shorting in BTS clearly had no clue what are they doing. To issue bitAsset, we need to deposit a double collateral upfront, and to settle the debt we need to deposit 100% on top of double collateral. This is ridiculous and defeats the whole purpose of margin trading, which is to trade large amount with small funds. MPA is a very nice concept, which is buried under flawed implementation. Shorting is a central piece of BTS monetary system, but it is totally screwed. This has to be fixed ASAP. BTS shareholders should hire somebody who has expertise in developing trading software, pay them well through worker and let them fix shorting and all other flaws. Before this is done, don't dream about mass adoption, because other exchanges offer much cleaner products.

[Pheonike]

Poloniex an exchanges like that in general like that system because the can front run the trades and make a killing. Stuff like that won't be possible on bitshares.org because it's all on the blockchain.

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[Stan]

@yvv what are you talking about mate? I think you confuse bitshares DEX purpose... Every bitasset created in bitshares is backed up by min 2.5 collateral value in bitshares. This is why in bitshares if you want to short sell you need to place at least 2.5 collateral value. This is why bitshares is safe and will avoid bankrupt. Because every bitasset created is backed up by 2.5 times collateral value!! This is why bitshares is superior to any bank and to any centralized exchange..Because you know that the " Bank" actually holds a lot of collateral for your "Money"...This is not a flaw in bitshares!! This is the superior market selling point of bitshares!!

Especially now that we have more than $1 mil in bitassets is bitusd and bitcny and we all know that for these bitassets the blockchain holds at least x2.5 collateral in bts value, THAT is the selling point of bitshares. I know that now I feel very comfortable keeping my bitusd in bitshares Dex. What we need to do now is just do the same for biteur, bitgbp, bitgold, bitsilver, bitbtc and reduce the premium paid for those bitassets as well and be close to peg as bitusd and bitcny are currently are...

Bitshares DEX is supposed to be your own bank. Not your own trading house! I want to feel safe keeping bitassets. I do not want bitshares blockchain to keep fractional reserves so you can margin trade with leverage!! The people who designed bts knew exactly what they were doing!!

Going back to margin trading of centralized exchanges that you mentioned...All exchanges that give leverage are supposed to keep balanced books, take opposite positions to hedge and keep only the spreads charged. Well I have news for you..Most of them don't do that! Not even very big regulated exchanges that offer leverage to their customers. This is why when the CHF - EUR peg broke a couple of very big exchanges with margin trading went bankrupt and others almost bankrupt..

I hope that you do know that most banks just keep only fractional reserves of peoples money right? Well I want bitshares to be exactly what it is..A bank that keeps more than 250% of collateral of peoples money!

As a final note, I hope you do not learn the hard way about margin trading in Poloniex as I did when I lost 80% of my bts holdings when I used them to margin trade (going long of course)..Poloniex and all these exchanges most probably manipulate prices in their favor. They see all the order books and they have really sophisticated bots to drive margin calls and screw you in their favor. So be careful when margin trading in Poloniex. They can screw you even if you are in the right direction of the trade..For example after too obvious pumps you go short and all of the sudden their servers don't work until prices recover and you do not get your entitled profit, or get margin called when you wanted to close your position etc etc..

^^THIS^^THIS^^THIS

The difference of perspective between BitShares and Poloniex is essentially the same as Kenesian vs. Austrian economics.  Traders will ALWAYS be a much smaller subset of everybody else who can benefit from BitShares. If you appeal to people who want a safe place to store their wealth that same safe place is not going to be a hot trading platform - the two objectives are contrary to one another.

This is yet another example of a dichotomy within the BitShares ecosystem, like Stealth vs. open ledger. Savers and Traders want opposite things out of BTS - one to be a stable store of value the other wants volatility so the trading action is profitable.

Why not market to both groups? Appeal to savers by offering a dividend on their BitUSD, and to traders via a campaign of "Safe Trading"? The issue with the system of trading yyv seems to think so highly of is the leverage isn't safe. Haven't you learned from all those examples of over-leveraged derivatives that collapse when one key investor with huge stake gambles big, looses, then all the smaller fish that relied on gains from trades of that big guy go down, and it's just a house of cards waiting to fall. That can't happen with adequate collateral. Sorry to burst your bubble but you're looking through rose colored glasses and they blind you to the real dangers of the mainstream financial system. Sadly, people aren't willing to see those dangers until they are personally faced with them. It strikes me as a weakness of a gambling addict.

The leverage you like so much is merely an illusion of safety made attractive by potential profits. That safety will evaporate faster than a bot can place an order when the inevitable collapse begins.

 

[Thom]

@yvv what are you talking about mate? I think you confuse bitshares DEX purpose... Every bitasset created in bitshares is backed up by min 2.5 collateral value in bitshares. This is why in bitshares if you want to short sell you need to place at least 2.5 collateral value. This is why bitshares is safe and will avoid bankrupt. Because every bitasset created is backed up by 2.5 times collateral value!! This is why bitshares is superior to any bank and to any centralized exchange..Because you know that the " Bank" actually holds a lot of collateral for your "Money"...This is not a flaw in bitshares!! This is the superior market selling point of bitshares!!

Especially now that we have more than $1 mil in bitassets is bitusd and bitcny and we all know that for these bitassets the blockchain holds at least x2.5 collateral in bts value, THAT is the selling point of bitshares. I know that now I feel very comfortable keeping my bitusd in bitshares Dex. What we need to do now is just do the same for biteur, bitgbp, bitgold, bitsilver, bitbtc and reduce the premium paid for those bitassets as well and be close to peg as bitusd and bitcny are currently are...

Bitshares DEX is supposed to be your own bank. Not your own trading house! I want to feel safe keeping bitassets. I do not want bitshares blockchain to keep fractional reserves so you can margin trade with leverage!! The people who designed bts knew exactly what they were doing!!

Going back to margin trading of centralized exchanges that you mentioned...All exchanges that give leverage are supposed to keep balanced books, take opposite positions to hedge and keep only the spreads charged. Well I have news for you..Most of them don't do that! Not even very big regulated exchanges that offer leverage to their customers. This is why when the CHF - EUR peg broke a couple of very big exchanges with margin trading went bankrupt and others almost bankrupt..

I hope that you do know that most banks just keep only fractional reserves of peoples money right? Well I want bitshares to be exactly what it is..A bank that keeps more than 250% of collateral of peoples money!

As a final note, I hope you do not learn the hard way about margin trading in Poloniex as I did when I lost 80% of my bts holdings when I used them to margin trade (going long of course)..Poloniex and all these exchanges most probably manipulate prices in their favor. They see all the order books and they have really sophisticated bots to drive margin calls and screw you in their favor. So be careful when margin trading in Poloniex. They can screw you even if you are in the right direction of the trade..For example after too obvious pumps you go short and all of the sudden their servers don't work until prices recover and you do not get your entitled profit, or get margin called when you wanted to close your position etc etc..

^^THIS^^THIS^^THIS

The difference of perspective between BitShares and Poloniex is essentially the same as Kenesian vs. Austrian economics.  Traders will ALWAYS be a much smaller subset of everybody else who can benefit from BitShares. If you appeal to people who want a safe place to store their wealth that same safe place is not going to be a hot trading platform - the two objectives are contrary to one another.

This is yet another example of a dichotomy within the BitShares ecosystem, like Stealth vs. open ledger. Savers and Traders want opposite things out of BTS - one to be a stable store of value the other wants volatility so the trading action is profitable.

Why not market to both groups? Appeal to savers by offering a dividend on their BitUSD, and to traders via a campaign of "Safe Trading"? The issue with the system of trading yyv seems to think so highly of is the leverage isn't safe. Haven't you learned from all those examples of over-leveraged derivatives that collapse when one key investor with huge stake gambles big, looses, then all the smaller fish that relied on gains from trades of that big guy go down, and it's just a house of cards waiting to fall. That can't happen with adequate collateral. Sorry to burst your bubble but you're looking through rose colored glasses and they blind you to the real dangers of the mainstream financial system. Sadly, people aren't willing to see those dangers until they are personally faced with them. It strikes me as a weakness of a gambling addict.

The leverage you like so much is merely an illusion of safety made attractive by potential profits. That safety will evaporate faster than a bot can place an order when the inevitable collapse begins.

[nmywn]

@yvv  for MCR 1.75.
 Put 1, receive 1.33  if (your collateral < your CR [must be min. MCR]) all sells go into collateral. USD start being covered when order get filled, until then is only virtual, however create real market pressure. If your collateral is > 1.75 you have proof of shorting, which can be maybe used for yield.

I'm not sure if I understood this correctly. Probably talking bullshit.

Edit:
But i would be limited to 1 market. Now I can borrow USD and buy LISK or Bitcoin or whatever. Can I make this on polo?

[yvv]

Every bitasset created in bitshares is backed up by min 2.5 collateral value in bitshares.

No, it is not. I have short bitSilver position which is currently backed by 1.9 collateral. And it went down to 1.55 recently. Anyway, regardless of mandatory collateral ratio, it is not necessary to put all of it upfront. This is very important for market making, and poloniex does it right.

This is not a flaw in bitshares!! This is the superior market selling point of bitshares!!

No, this is a bullshit flaw, which repels shorters away. That's why they all trade at poloniex, not at bitshares.

[mf-tzo]

@yvv what are you talking about mate? I think you confuse bitshares DEX purpose... Every bitasset created in bitshares is backed up by min 2.5 collateral value in bitshares. This is why in bitshares if you want to short sell you need to place at least 2.5 collateral value. This is why bitshares is safe and will avoid bankrupt. Because every bitasset created is backed up by 2.5 times collateral value!! This is why bitshares is superior to any bank and to any centralized exchange..Because you know that the " Bank" actually holds a lot of collateral for your "Money"...This is not a flaw in bitshares!! This is the superior market selling point of bitshares!!

Especially now that we have more than $1 mil in bitassets is bitusd and bitcny and we all know that for these bitassets the blockchain holds at least x2.5 collateral in bts value, THAT is the selling point of bitshares. I know that now I feel very comfortable keeping my bitusd in bitshares Dex. What we need to do now is just do the same for biteur, bitgbp, bitgold, bitsilver, bitbtc and reduce the premium paid for those bitassets as well and be close to peg as bitusd and bitcny are currently are...

Bitshares DEX is supposed to be your own bank. Not your own trading house! I want to feel safe keeping bitassets. I do not want bitshares blockchain to keep fractional reserves so you can margin trade with leverage!! The people who designed bts knew exactly what they were doing!!

Going back to margin trading of centralized exchanges that you mentioned...All exchanges that give leverage are supposed to keep balanced books, take opposite positions to hedge and keep only the spreads charged. Well I have news for you..Most of them don't do that! Not even very big regulated exchanges that offer leverage to their customers. This is why when the CHF - EUR peg broke a couple of very big exchanges with margin trading went bankrupt and others almost bankrupt..

I hope that you do know that most banks just keep only fractional reserves of peoples money right? Well I want bitshares to be exactly what it is..A bank that keeps more than 250% of collateral of peoples money!

As a final note, I hope you do not learn the hard way about margin trading in Poloniex as I did when I lost 80% of my bts holdings when I used them to margin trade (going long of course)..Poloniex and all these exchanges most probably manipulate prices in their favor. They see all the order books and they have really sophisticated bots to drive margin calls and screw you in their favor. So be careful when margin trading in Poloniex. They can screw you even if you are in the right direction of the trade..For example after too obvious pumps you go short and all of the sudden their servers don't work until prices recover and you do not get your entitled profit, or get margin called when you wanted to close your position etc etc..

[yvv]

(...) and to settle the debt we need to deposit 100% on top of double collateral.

You can set your CR = MCR and wait for margin call. If there is enough buyers close to feed, you shouldn't be at loss. This is maybe not what you want, but  will close your whole position without additional funds.
OR
If you have safe CR, you can reduce it for a moment, use funds to partially cover your debt - at the end you have still 0 funds, but better CR, so you can repeat your operation with better effect each step.
For example: 2.0 => 1.8 => 2.25 ... 2.25 =>1.8 => 3.2

Am I wrong?

Yeah, I know that there are ways around, but this is not how margin trading is supposed to work. All these workarounds create friction for traders and make them leave to poloniex, where things are done correct way. Market maker should make a margin deposit, and buy/sell back and forth seamlessly. Debt should be issued and settled automatically and there is no need to make 2x deposit upfront.

[nmywn]

(...) and to settle the debt we need to deposit 100% on top of double collateral.

You can set your CR = MCR and wait for margin call. If there is enough buyers close to feed, you shouldn't be at loss. This is maybe not what you want, but  will close your whole position without additional funds.
OR
If you have safe CR, you can reduce it for a moment, use funds to partially cover your debt - at the end you have still 0 funds, but better CR, so you can repeat your operation with better effect each step.
For example: 2.0 => 1.8 => 2.25 ... 2.25 =>1.8 => 3.2

Am I wrong?

[yvv]

How would we cover the 100% collateral though? Poloniex does this with a centralized insurance fund..

No, it does not need no centralized insurance fund. You  deposit 1 BTC, then you short sell 2.5 BTC worth of ETH, and these 2.5 BTC which you get become your collateral. At the end, you have 2.5 BTC worth of ETH dept insured by 3.5 BTC collateral. Your dept is 140% insured. Everything is clean and simple.

[R]

How would we cover the 100% collateral though? Poloniex does this with a centralized insurance fund..

[yvv]

You need to try margin trading at other exchanges to see how screwed is bitshares shorting. I tried shorting at poloniex last night, and now very regret that I did not try this earlier, because it makes so much more sense than shorting in BTS. At poloniex, you deposit 1 BTC, and this allows you to short 2.5 BTC worth of any assets by simply placing sell orders. When your order is filled, BTC which you got from short selling, is added to your initial deposit to back up the debt which you just created. You settle your debt by simply placing a buy order. When it is filled, your collateral is transferred to other party and your debt is settled. This is how margin trading is actually supposed to work. You deposit only 40% collateral upfront, but your position is 140% collateralized.

The guys who coded shorting in BTS clearly had no clue what are they doing. To issue bitAsset, we need to deposit a double collateral upfront, and to settle the debt we need to deposit 100% on top of double collateral. This is ridiculous and defeats the whole purpose of margin trading, which is to trade large amount with small funds. MPA is a very nice concept, which is buried under flawed implementation. Shorting is a central piece of BTS monetary system, but it is totally screwed. This has to be fixed ASAP. BTS shareholders should hire somebody who has expertise in developing trading software, pay them well through worker and let them fix shorting and all other flaws. Before this is done, don't dream about mass adoption, because other exchanges offer much cleaner products.