Author Topic: Bitshares shorting is flawed and needs to be fixed ASAP  (Read 6212 times)

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Offline yvv

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Bitshares shorting is flawed and needs to be fixed ASAP
« on: April 19, 2017, 04:43:53 pm »
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.

Offline R

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #1 on: April 19, 2017, 05:49:01 pm »
How would we cover the 100% collateral though? Poloniex does this with a centralized insurance fund..

Offline yvv

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #2 on: April 19, 2017, 06:08:24 pm »
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.

Offline nmywn

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #3 on: April 19, 2017, 06:57:09 pm »
(...) 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?




Offline yvv

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #4 on: April 19, 2017, 07:36:33 pm »
(...) 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.

Offline mf-tzo

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #5 on: April 19, 2017, 08:10:22 pm »
[member=40079]yvv[/member] 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..

Offline yvv

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #6 on: April 19, 2017, 08:38:46 pm »
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.

Quote
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.


Offline nmywn

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #7 on: April 19, 2017, 09:14:51 pm »
[member=40079]yvv[/member]  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?
« Last Edit: April 19, 2017, 09:40:26 pm by nmywn »

Offline Thom

Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #8 on: April 20, 2017, 01:24:24 am »
[member=40079]yvv[/member] 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.
Injustice anywhere is a threat to justice everywhere - MLK |  Verbaltech2 Witness Reports: https://bitsharestalk.org/index.php/topic,23902.0.html

Offline Stan

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #9 on: April 20, 2017, 02:08:28 am »
[member=40079]yvv[/member] 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.

+1  8)
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline Pheonike

Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #10 on: April 20, 2017, 03:55:09 am »
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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Offline MarkoPaasila

Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #11 on: April 20, 2017, 08:19:25 am »
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.

Offline yvv

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #12 on: April 20, 2017, 02:25:46 pm »
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.

Offline xeroc

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #13 on: April 20, 2017, 02:32:39 pm »
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.
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Offline yvv

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Re: Bitshares shorting is flawed and needs to be fixed ASAP
« Reply #14 on: April 20, 2017, 02:35:19 pm »

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.