Author Topic: Followup to yesterday's hangout  (Read 1250 times)

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Offline pc

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Followup to yesterday's hangout
« on: July 15, 2017, 09:01:36 am »
Like I promised, I posted an example about margin calls on steemit: https://steemit.com/bitshares/@cyrano/how-bitshares-protects-mpas-using-margin-calls
Bitcoin - Perspektive oder Risiko? ISBN 978-3-8442-6568-2 http://bitcoin.quisquis.de

Offline yvv

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Re: Followup to yesterday's hangout
« Reply #1 on: July 15, 2017, 12:29:53 pm »
Quote
The MSSR provides an incentive to both traders and shorters to work towards that goal:

    For the owner of the short position, the MSSR is a penalty. This encourages him to always provide sufficient collateral.
    For the trader, the MSSR is an incentive to sell bitUSD, because the margin call pays more than the settlement price.

Everything is vise versa actually. MSSR protects the owner of short position, since it puts a limit on a price at which the borrowed asset is bought back when margin call is triggered. For the trader this limit is not good, because it does not allow to sell at better price.

Offline yvv

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Re: Followup to yesterday's hangout
« Reply #2 on: July 15, 2017, 12:36:23 pm »
Also, settlement price and feed price are two different prices for some bitAssets due to settlement offset.

Offline pc

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Re: Followup to yesterday's hangout
« Reply #3 on: July 15, 2017, 01:49:06 pm »
Everything is vise versa actually. MSSR protects the owner of short position, since it puts a limit on a price at which the borrowed asset is bought back when margin call is triggered. For the trader this limit is not good, because it does not allow to sell at better price.

Well, that depends on the direction from which you're looking at it. :-)

The fact that the blockchain will buy above the market price is an incentive to both, like I described. The fact that there is a *maximum* at which the blockchain will buy protects the shorter and limits the effect on the trader, like you said.

Because it is difficult to find a balance there, the MSSR is not hardcoded but part of the price feed data, and can thus be set by the feeders.

Also, settlement price and feed price are two different prices for some bitAssets due to settlement offset.

That depends on what you call "settlement price". In the code, the term is used both ways.
I left the settlement offset out of the example because I wanted to keep it simple.
Bitcoin - Perspektive oder Risiko? ISBN 978-3-8442-6568-2 http://bitcoin.quisquis.de

Offline yvv

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Re: Followup to yesterday's hangout
« Reply #4 on: July 15, 2017, 02:14:07 pm »
If you ask me, I don't see any sense in setting the MSSR. A maximum price at which a margin call can buy back a debt is naturally limited by the amount of collateral. Just go ahead and buy all the way up to call_price*MCR. Let the bad shorter pay his price. By putting a limit on buy back price lower than call_price*MCR, we just increase a chance of black swan. If we care about shorters so much, I would rather advocate to lower the MCR to something like 1.5.

Offline pc

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Re: Followup to yesterday's hangout
« Reply #5 on: July 15, 2017, 06:36:53 pm »
A maximum price at which a margin call can buy back a debt is naturally limited by the amount of collateral. Just go ahead and buy all the way up to call_price*MCR. Let the bad shorter pay his price. By putting a limit on buy back price lower than call_price*MCR, we just increase a chance of black swan.

If you buy too much too quickly there is the danger that the available collateral will be used up before the debt can be covered, which actually increases the chance of a black swan. A balance needs to be found there, which is certainly difficult.
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Offline yvv

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Re: Followup to yesterday's hangout
« Reply #6 on: July 15, 2017, 06:42:31 pm »
A maximum price at which a margin call can buy back a debt is naturally limited by the amount of collateral. Just go ahead and buy all the way up to call_price*MCR. Let the bad shorter pay his price. By putting a limit on buy back price lower than call_price*MCR, we just increase a chance of black swan.

If you buy too much too quickly there is the danger that the available collateral will be used up before the debt can be covered, which actually increases the chance of a black swan. A balance needs to be found there, which is certainly difficult.

You have X debt covered by Y collateral, Y/X is the maximum buy back price. What danger are you talking about? It is a simple market order.


Offline pc

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Re: Followup to yesterday's hangout
« Reply #7 on: July 15, 2017, 09:04:11 pm »
If you put a large order on the market all at once you will move the price a lot.
If you spread the same amount over a longer period you are less likely to affect the price.
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Offline yvv

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Re: Followup to yesterday's hangout
« Reply #8 on: July 15, 2017, 09:50:44 pm »
If you put a large order on the market all at once you will move the price a lot.

You will move the price to maximum of call_price*MCR, and this limit will be reached only in shallow markets, where price moves all the time by a lot anyway.  What is a problem with this?

Quote
If you spread the same amount over a longer period you are less likely to affect the price.

MSSR does not solve this issue. It moves the price the same way up to the short squeeze price, which in current set up is lower than collateral actually allows, which does not make sense to me.

Offline pc

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Re: Followup to yesterday's hangout
« Reply #9 on: July 16, 2017, 06:54:18 am »
If you put a large order on the market all at once you will move the price a lot.

You will move the price to maximum of call_price*MCR, and this limit will be reached only in shallow markets, where price moves all the time by a lot anyway.  What is a problem with this?

This could trigger a panic reaction from other market participants, and once the price moves beyond call_price*MCR you have a black swan.


Quote
If you spread the same amount over a longer period you are less likely to affect the price.

MSSR does not solve this issue. It moves the price the same way up to the short squeeze price, which in current set up is lower than collateral actually allows, which does not make sense to me.

Yes, it moves the price up to the short squeeze price. This is less likely to trigger a panic reaction and might even be seen as an opportunity by others.
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Offline yvv

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Re: Followup to yesterday's hangout
« Reply #10 on: July 16, 2017, 01:57:49 pm »
If you put a large order on the market all at once you will move the price a lot.

You will move the price to maximum of call_price*MCR, and this limit will be reached only in shallow markets, where price moves all the time by a lot anyway.  What is a problem with this?

This could trigger a panic reaction from other market participants, and once the price moves beyond call_price*MCR you have a black swan.


Quote
If you spread the same amount over a longer period you are less likely to affect the price.

MSSR does not solve this issue. It moves the price the same way up to the short squeeze price, which in current set up is lower than collateral actually allows, which does not make sense to me.

Yes, it moves the price up to the short squeeze price. This is less likely to trigger a panic reaction and might even be seen as an opportunity by others.

Setting buy back limit at 1.75*call_price gives less chance of black swan than setting it to 1.1*call_price, because there is more chance that margin call gets filled. Margin call gets filled - no black swan happens. Is not this evident?

This whole "panic reaction" argument does not make sense at all. MPA market reacts on the peg price moves, not on deviation from the peg. If it deviates by a lot, it returns back to peg eventually, because this is how MPA is designed. And the peg price is defined by external markets.

Offline pc

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Re: Followup to yesterday's hangout
« Reply #11 on: July 16, 2017, 08:12:53 pm »
Look, I don't claim that what I'm saying is The Truth (tm). Whatever that is. There may not be a single truth.

Why don't you create a smartcoin with MCR=MSSR=1.75 and see what happens?
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Offline yvv

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Re: Followup to yesterday's hangout
« Reply #12 on: July 16, 2017, 08:35:36 pm »
Just look at bit20, if creator would not increase MSSR, it would probably go to black swan already, because nobody wanted to take margin call orders at 10% premium. He could set the MSSR to maximum from the beginning and save the trouble.

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Re: Followup to yesterday's hangout
« Reply #13 on: July 16, 2017, 10:10:16 pm »
I would agree that changing the MSSR in mid-game is a bad move.
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Offline tonighthardy

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Re: Followup to yesterday's hangout
« Reply #14 on: August 07, 2017, 06:00:57 am »
Thank you! I appreciate it!