Author Topic: BSIP-18: How to easily revive a BitAsset after Black Swan - read for comment  (Read 14265 times)

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Offline Brekyrself

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The hardfork on testnet went well today. We successfully revived some bitassets after artificially created black swans.

The bad news is that, so far, witness participation leaves much to be desired:
* Of the 25 active witnesses on mainnet, only 12 are currently active on testnet.
* During and after the hardfork only rnglab, bhuz and lafona showed up on telegram. Later, wackou and thom (aka verbaltech) showed up. (Xeroc and myself were also present, but we're not witnesses.)
* I'm not aware of any witnesses preparing and/or executing significant tests.

Witnesses, please perform any acceptance tests you deem necessary on testnet. Report any bugs you find on github, or here in this thread if you don't have a github account. If no showstoppers turn up, I plan to prepare the main release in about a week, with the hardfork date at least one month in the future (this is open to discussion of course).

Thank you for the follow up.  All witnesses should also be active on testnet to aid in development. 

@oxarbitrage any chance of adding the testnet to the explorer so we can see both networks?  This way we can see which witnesses are staying diligent to the bitshares ecosystem.
@bitcrab Can you push the witnesses you support to also run nodes on the testnet?

Offline pc

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The hardfork on testnet went well today. We successfully revived some bitassets after artificially created black swans.

The bad news is that, so far, witness participation leaves much to be desired:
* Of the 25 active witnesses on mainnet, only 12 are currently active on testnet.
* During and after the hardfork only rnglab, bhuz and lafona showed up on telegram. Later, wackou and thom (aka verbaltech) showed up. (Xeroc and myself were also present, but we're not witnesses.)
* I'm not aware of any witnesses preparing and/or executing significant tests.

Witnesses, please perform any acceptance tests you deem necessary on testnet. Report any bugs you find on github, or here in this thread if you don't have a github account. If no showstoppers turn up, I plan to prepare the main release in about a week, with the hardfork date at least one month in the future (this is open to discussion of course).
Bitcoin - Perspektive oder Risiko? ISBN 978-3-8442-6568-2 http://bitcoin.quisquis.de

Offline pc

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The development branch was merged into testnet yesterday, with a hardfork planned for friday 2017-09-15 12:00:00 UTC.
Bitcoin - Perspektive oder Risiko? ISBN 978-3-8442-6568-2 http://bitcoin.quisquis.de

Offline pc

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Sorry about the delay.

The developers (i.e. mostly Alfredo, abit and myself) have been quite busy working behind the scenes, reviewing various contributions on github and planning for the upcoming hardfork.

In addition, it has turned out that our formal processes are inadequate for small bugfixes that require changing the consensus logic. After discussing this here, consensus seems to be that for bugfixes witness approval is sufficient.

We now plan to include these three bugfixes in the upcoming BSIP-0018 hardfork:

I have asked for witness opinion on telegram. If they signal approval we will merge the PRs within the next couple of days, and then proceed to prepare a hardfork on testnet.
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Offline pc

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Who is going to pay to make the settlement fund BACK reach the minimum required collateral? Because it should not be the responsibility of every bts holders to rescue a specific bad MPA. The exchange sould not rescue a bad asset, they should let bad assets die out and good assets survive.

I fully agree with that. The proposed mechanism does not *force* anybody to pay for the revival.

Or else, is this proposal really going to cover the above issue or just to provide a methodology (and leave this issue to be determined case by case)? This could be better IMO. I mean, each case could differ vastly. For example, if one MPA has vary little trading volume, I prefer to stop this MPA, restart a new one after coming up with a better plan.

Exactly. I see three main use cases for the mechanism:

1. When the price of BACK recovers sufficiently, no additional collateral is required and the asset is revived automatically. I believe this would be applicable to the black swans we had in the early days of BTS-2.0, i. e. SEK and RUB.
2. The creator of an MPA may be interested in keeping his asset alive, and might be willing to add the required collateral, possibly after reviewing his price feed policy and MCR. Candidates for this might be GRC (GridCoin) and some of the formula-based assets that are being discussed here in the forum.
3. When BACK recovers to a point above the nominal value of SWAN, but is still below MCR, an investor who is bullish on BACK may be willing to pay additional collateral, hoping to make a profit if BACK rises even higher.
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Offline fav

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Or else, is this proposal really going to cover the above issue or just to provide a methodology (and leave this issue to be determined case by case)? This could be better IMO. I mean, each case could differ vastly. For example, if one MPA has vary little trading volume, I prefer to stop this MPA, restart a new one after coming up with a better plan.

exactly my thoughts. BSIP18 is only useful if say bitUSD black swans due to a bug or something.

other than that, dead assets are not profitable anyways, they can just die off in my opinion

Offline 麥可貓

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Setup a backup pool to act as collateral to rescue those not-sufficiently backed MPA out.

Yes, that's a good simplified summary. :-)

Thank you for your reply. After discussion with others who also read the BSIP0018, we raised some further concerns:

Who is going to pay to make the settlement fund BACK reach the minimum required collateral? Because it should not be the responsibility of every bts holders to rescue a specific bad MPA. The exchange sould not rescue a bad asset, they should let bad assets die out and good assets survive.

Or else, is this proposal really going to cover the above issue or just to provide a methodology (and leave this issue to be determined case by case)? This could be better IMO. I mean, each case could differ vastly. For example, if one MPA has vary little trading volume, I prefer to stop this MPA, restart a new one after coming up with a better plan.
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Offline pc

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Setup a backup pool to act as collateral to rescue those not-sufficiently backed MPA out.

Yes, that's a good simplified summary. :-)
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Offline 麥可貓

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I am afraid that I am confused with those financial terms, but I want to ask if I can summarize this proposal as the following:
Setup a backup pool to act as collateral to rescue those not-sufficiently backed MPA out.

Or please could you give me a take home message without those terms?
Thank you
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Offline pc

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BSIP-0018 has been updated: https://github.com/bitshares/bsips/blob/master/bsip-0018.md

tl:dr:
* fix the bug that prevents individual settlement after price feeds have expired
* allow publishing price feed for an asset even after is has seen global settlement
* automatically turn the settlement_fund and current_supply into a call_order belonging to the issuer if the price of the collateral has recovered sufficiently
* allow users to "bid" on debt/collateral and turn settlement_funds + bids into call_orders when sufficient bids have been made (as originally suggested)

I'd appreciate your comments, because I plan to set up a worker proposal for this.
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Offline yvv

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When a black swan happens, it is typically due to one short position becoming undercollateralized. That position has a known owner, who is in a way the culprit. You *could* force-settle that specific short position - but against whom? You'd have to pick one (or possibly more, depending on the volume of the undercollateralized short) holder of the bitasset, take the funds away from him and pay out a number of BTS to him/them that is likely insufficient to cover his/their loss.

I don't see how you can do this, if the total value of debt is greater than the total value of collateral. Whichever position(s) you chose to settle will not be enough to cover the debt created by a single culprit, and you have no choice but to settle everybody globally.
 

Offline pc

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The thing is, the short positions have different owners. What do you do when the short position of person A becomes insufficiently collateralized?
Take collateral from person B, who may have put in more collateral for his debt, to compensate? That would be extremely unfair to person B, and would encourage everybody to put in just as much collateral as is absolutely required.
Or would you force settle person C, who is in a long position, paying him the insufficient collateral as compensation? That would be extremely unfair on person C, and would violate the settlement guarantee.

In the end, there is no fair way out of this. The most fair thing to do is treat everyone the same, settle the asset globally and shut it down. That's how it is implemented.

And yes, that is the inherent risk with MPAs, and also their weak point.

Like @biophil, I offer my apologies in advance as I have not been involved in this conversation. However, the quote above is at a level I can understand and at least ask questions about:

Q1: Why force settle globally and not individually?
Q2: Is it not possible to force settle person A and leave the others with adequate collateral alone?
Q3: In the event of a rapidly changing market where a series of individual force settles would "clog" the asset, can't an algorithm be applied that says, "if X positions of the asset are force settled within Y time frame declare a 'black swan' event and force settle all remaining short positions".
Q4: I presume all participants have the same (minimum) collateral requirements, but can shorters provide more than the minimum when the short position is created? If so an individual settlement position makes sense, otherwise I can see why a global settlement makes sense  as all short positions are equally under collateralized. The market as a whole may not be, so long as the total collateral of all shorters does not fall below 100%.

I can well imagine some may argue that it is the largest positions that will be force settled first as they have the potential to impact the 100% threshold. I would counter-argue that is the risk to be borne by such large scale investors.

The idea is to treat everybody the same. (At least that's my understanding. The answer may be hidden in a forum thread from 2 years ago.)

When a black swan happens, it is typically due to one short position becoming undercollateralized. That position has a known owner, who is in a way the culprit. You *could* force-settle that specific short position - but against whom? You'd have to pick one (or possibly more, depending on the volume of the undercollateralized short) holder of the bitasset, take the funds away from him and pay out a number of BTS to him/them that is likely insufficient to cover his/their loss.

Selecting an arbitrary individual to take the loss of the undercollateralized position is obviously unfair. Instead, the asset is settled globally, which means everybody is treated the same, which may not be a nice thing to do, but at least it is fair.

Re Q4: yes, shorters can offer more collateral than required. In fact this is recommended, because otherwise they will be margin called.
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Offline Thom

Global settlement seems to say "if a single short position lacks sufficient collateral, shut the entire token down immediately AND ditch the majority of that token's collateral." Right? Just because a single short position falls below 100% collateralization doesn't mean that most short positions aren't​ appropriately collateralized, but in global settlement most of that collateral is returned to the short positions.

Right.

The thing is, the short positions have different owners. What do you do when the short position of person A becomes insufficiently collateralized?
Take collateral from person B, who may have put in more collateral for his debt, to compensate? That would be extremely unfair to person B, and would encourage everybody to put in just as much collateral as is absolutely required.
Or would you force settle person C, who is in a long position, paying him the insufficient collateral as compensation? That would be extremely unfair on person C, and would violate the settlement guarantee.

In the end, there is no fair way out of this. The most fair thing to do is treat everyone the same, settle the asset globally and shut it down. That's how it is implemented.

And yes, that is the inherent risk with MPAs, and also their weak point.

Like @biophil, I offer my apologies in advance as I have not been involved in this conversation. However, the quote above is at a level I can understand and at least ask questions about:

Q1: Why force settle globally and not individually?
Q2: Is it not possible to force settle person A and leave the others with adequate collateral alone?
Q3: In the event of a rapidly changing market where a series of individual force settles would "clog" the asset, can't an algorithm be applied that says, "if X positions of the asset are force settled within Y time frame declare a 'black swan' event and force settle all remaining short positions".
Q4: I presume all participants have the same (minimum) collateral requirements, but can shorters provide more than the minimum when the short position is created? If so an individual settlement position makes sense, otherwise I can see why a global settlement makes sense  as all short positions are equally under collateralized. The market as a whole may not be, so long as the total collateral of all shorters does not fall below 100%.

I can well imagine some may argue that it is the largest positions that will be force settled first as they have the potential to impact the 100% threshold. I would counter-argue that is the risk to be borne by such large scale investors.
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Offline pc

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Global settlement seems to say "if a single short position lacks sufficient collateral, shut the entire token down immediately AND ditch the majority of that token's collateral." Right? Just because a single short position falls below 100% collateralization doesn't mean that most short positions aren't​ appropriately collateralized, but in global settlement most of that collateral is returned to the short positions.

Right.

The thing is, the short positions have different owners. What do you do when the short position of person A becomes insufficiently collateralized?
Take collateral from person B, who may have put in more collateral for his debt, to compensate? That would be extremely unfair to person B, and would encourage everybody to put in just as much collateral as is absolutely required.
Or would you force settle person C, who is in a long position, paying him the insufficient collateral as compensation? That would be extremely unfair on person C, and would violate the settlement guarantee.

In the end, there is no fair way out of this. The most fair thing to do is treat everyone the same, settle the asset globally and shut it down. That's how it is implemented.

And yes, that is the inherent risk with MPAs, and also their weak point.
Bitcoin - Perspektive oder Risiko? ISBN 978-3-8442-6568-2 http://bitcoin.quisquis.de

Offline biophil

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Doesn't the global settlement operation seem like it's what should be fixed?

Global settlement happens in two situations:

1. In a prediction market, after the to-be-predicted event has a defined outcome, and
2. when a short position of an MPA has insufficient collateral to buy back the debt.

How would you fix that?

Offhand? I don't know how I'd fix it, and I realize that I've not been here for the lengthy discussions on it. But it seems like an incredibly weak point of the MPA system.

Global settlement seems to say "if a single short position lacks sufficient collateral, shut the entire token down immediately AND ditch the majority of that token's collateral." Right? Just because a single short position falls below 100% collateralization doesn't mean that most short positions aren't​ appropriately collateralized, but in global settlement most of that collateral is returned to the short positions. It's like at the first sign of danger we burn our safety net.

It just seems like a bizzarely extreme measure. But like I said, I'm aware that this has been discussed before and I'm ignorant of all those issues.
« Last Edit: June 07, 2017, 02:31:02 pm by biophil »
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